European investors are becoming increasingly concerned over the ability of the region’s banks to refinance their maturing debt, Fitch Ratings’ quarterly fixed income investor survey shows.

The rating agency reported on Wednesday that in its most recent survey, the share of respondents expecting banks to face the greatest refinancing challenge rose to 36%, up from 8% recorded in Fitch’s April survey. Banks ranked second behind developed market sovereigns in terms of investor refinancing concerns.

The survey was completed just before the results of EU stress tests were revealed, which Fitch said could help soothe some of the concerns expressed by investors.

“The publication of the results of the EU bank stress tests on 23 July was potentially a critical event in terms of trying to restore investor confidence in many European banks,” said James Longsdon, managing director in Fitch’s financial institutions team. “The major European banks that ‘passed’ the tests with ease should now be better placed to continue with their re-financing programmes following the dramatic contraction in public debt issuance in May.”

However, he added that Fitch’s concern, “remains the impaired access to the debt markets of various banks located in countries where the market’s sovereign concerns have been most acute. It seems likely that such banks might need to raise more than the €3.5 billion capital shortfall identified in the tests in order to regain debt market confidence.”

The survey participants also pointed to funding access being the main risk to banks’ credit quality, ahead of other factors such as the macro economy, and the withdrawal of stimulus and quantitative easing programs.

Investor expectations on fundamental credit conditions for investment grade financials have also worsened, with 35% fearing deterioration compared with 23% in the latest survey.

Respondents gave a mixed message regarding views on the impact of regulatory reform proposals. While all agreed this would lead to changes in structure of the banking industry, there was an even split as to whether the impact would be “considerable” or “limited.”

IE